The Dubai International Financial Centre (DIFC), the United Arab Emirates’ financial hub, expects to permit transactions in Chinese yuan from this year, industry sources told Reuters on Thursday.
The change would represent an important step in China’s drive to encourage international use of its currency, since the UAE is one of the world’s top five oil exporters and the second largest Arab economy in the Gulf.
Nasser Saidi, the DIFC’s chief economist, said financial authorities were discussing the plan. The DIFC, which operates under special regulations, is a regional financial centre in which hundreds of international banks, asset managers, insurers, law firms and other companies are based.
The DIFC currently operates a payments system which focuses on settlements in U.S. dollars and euros. Adding the yuan would allow companies to use it instead of Western currencies for non-oil trade involving China. This would save time and transaction costs, Saidi said.
“It is a bank-based system, so banks in the region could use it if they comply with the regulations. There will be huge demand,” he told Reuters.
China is the second biggest exporter to the UAE, after India. Chinese imports into the UAE totalled 41.8 billion dirhams ($11.4 billion) in the first nine months of last year, according to the latest UAE customs figures.
The UAE’s oil exports to China would probably continue to be settled in dollars, the international currency for oil trade, after the new system is launched, bankers said.
An Asian banker familiar with the plan said the framework for yuan transactions in the DIFC was ready, and all that was needed was approval by the UAE’s central bank and the Dubai Financial Services Authority (DFSA), which regulates the DIFC.
A source at the DFSA told Reuters that his organisation was not yet involved in the discussions.
Emirates NBD, Dubai’s largest bank by market value, said this week that it had picked banks to arrange investor roadshows in Hong Kong and Singapore before a potential issue of an offshore yuan-denominated bond, which would be the Gulf Arab region’s first bond in the Chinese currency.
(Editing by Andrew Torchia)